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More Companies Recruit Outside CEOs in 2012, And Other C-Suite News

Yahoo CEO Marissa Mayer is one of this year's high-profile CEOs who came from outside the company to take the top job..

More companies are bringing in top bosses from outside their ranks than ever before, says a new study. Crist/Kolder Associates, a boutique executive search firm in Hinsdale, Ill., publishes an annual analysis of trends among top executives at the largest U.S. corporations. This year, the study examines C-suite activity at 669 companies between January and July of this year.

Of 42 new CEOs, 11 came from outside their companies, rather than being promoted from within. Crist/Kolder projects that if this trend keeps going, 28% of all new American CEOs will have come from outside their companies in 2012, exceeding the 20% annual average since 1995, the starting point for Crist/Kolder’s data collection. The previous high came in 2008 when 27.4% of CEOs were outside recruits.

One of this year’s most public hires was Marissa Mayer, the former Google executive who became CEO of Yahoo in July. Some other examples: Avon, which hired Sherilyn McCoy from Johnson & Johnson in April, and Freddie Mac, which brought in Donald Layton, who had worked at E*Trade Financial Corp. and at J.P. Morgan Chase.

According to Matt McGreal, a principal at Crist/Kolder, companies hired from outside in part because many firms did not have a solid internal succession plan in place. It’s also a reflection of the strengthening economy, he adds. “We find a trend of companies more willing to make a change at the top when the economy is doing better,” he says.

Another intriguing finding in the Crist/Kolder report: Most CEOs do not hold M.B.A.s Just 40.1% of CEOs at the companies covered by the report have graduate business degrees. In the retail business, less than one quarter (23%) of CEOs hold M.B.A.s At finance firms, more than half do have the degrees, but even in that profession, only 55% of CEOs have MBAs. Since business schools emphasize finance and accounting, it makes sense that MBAs would be more common among chief financial officers. Still, only a little more than half (51.1%) hold the degree.

What about college degrees? Star CEO drop-outs like Mark Zuckerberg, Bill Gates and Steve Jobs may be famous, but they are by far the exception to the rule. Only 2.4% of CEOs have no college degree, according to the study.

Where did all those CEOs go to college? The Ivy League boasts the biggest group, at 74. Among those, 17 went to Harvard and 14 to Stanford. There are also quite a few—67–from the so-called Big Ten schools like Indiana University and University of Michigan. There are also 67 who graduated from foreign schools, and 15 went to a group known as the New England Small College Athletic Conference that includes Amherst, Colby and Wesleyan.

A few more intriguing findings: Companies are continuing to do away with the job of chief operating officer, more quickly than they have in the past. Today only 35% have COOs versus 50% twelve years ago. The decline of the COO may also have something to do with the rise in outside CEO recruits. Traditionally, CEOs come from that job. Even today, 45% of all CEOs tracked by Crist/Kolder came from the COO role.

Finally, a note on diversity: Though the number of non-white CEOs has more than doubled since 2000 and the number of women CEOs has more than tripled in the same time period, in total both groups only account for 8.3% of CEOs measured by Crist/Kolder. But the outlook for more women and non-white C-suiters is hopeful. “We expect the rate at which women move into the CEO chairs at America’s largest companies to increase and the number of female CFOs to increase,” says the report. Along with that trend, Crist/Kolder predicts more women board members.

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It’s a sad commentary that more companies are not able to develop chief executives from within. Promoting from within ensures that the successor is familiar with the business and the culture, plus you know and trust the individual from a long period of working with him or her. Careful long-term succession planning should always be at or near the top of a CEO’s priorities…

I would suggest that your next analysis look at things an additional way. There is a prejudiced in corporate America for Ivy League CEO’s and promotable employees while other good candidates are not even given a second look. This is hurting many companies. Try measuring companies performance where CEO’s are from the Ivy League against the S&P 500. I wonder if they actually outperform their peers.